LONDON — Brexit jitters are complicating the Bank of England’s best-laid plans to change monetary course.

Britain’s central bank has strongly signaled its intention to hike rates in November for the first time in a decade. After all, rising inflation and interest rates at rock bottom would normally call for a tightening.

Except these aren’t normal times in Britain. The lack of clarity over how Brexit will play out adds to concerns about lackluster growth and stagnant wages. To many observers, now is no time for the BoE to tighten the reins.

“The bank has painted itself into a corner,” said Peter Dixon, chief U.K. economist at Commerzbank. “I’m not convinced of the reasons for a rate hike, but I’m rather forced to concede that November is looking like the most likely option.”

The bank finds itself in a difficult position. Raising rates may rattle business and consumer confidence even further. Not raising them would hit its credibility with the markets. And the swirling speculation about what it might do isn’t good either.

“There’s a lot of uncertainty over the political situation and Brexit, and the last thing the economy needs is more uncertainty about what is happening in monetary policy,” said Suren Thiru, head of economics at the British Chambers of Commerce (BCC).

“It would be much more helpful if the BoE spoke with one voice and were more clear on the path of interest rates” — Suren Thiru

According to the minutes of its last meeting in September, a “majority” of the members of the BoE’s monetary policy committee agreed that removing stimulus would be appropriate “over the coming months,” telling the market that it should get in gear for tightening.

Governor Mark Carney, too, is under pressure. Once likened to an “unreliable boyfriend” by Labour’s Pat McFadden for the way he signaled the timing of rate rises, Carney can ill-afford to backtrack. The governor, who last year announced his intention to step down in 2019, has faced consistent criticism from Brexiteers for talking down the economy and was last week described by Conservative MP Jacob Rees-Mogg as an “enemy of Brexit.”

Since the bank’s last meeting, however, the EU’s remaining 27 countries said there wasn’t “sufficient progress” in the Brexit talks to move to the next phase of talks on a future economic relationship with the EU, prolonging the uncertainty for British business. A deal may not emerge for months, if it does. Some 30 percent of economists polled by Reuters last week said Britain would be forced to leave without a deal.

Let England stagnate

Britain’s troubles with Brussels come on top of the almost daily infighting within Theresa May’s weak Conservative government, and against the backdrop of a worrying economic picture.

Though many of the headline economic numbers aren’t horrible — the first estimate of growth for July-September showed expansion by 0.4 percent, slightly better than the 0.3 percent growth in the second quarter of 2017 — it’s confidence and investment that are suffering.

For the first time in a year, optimism about business conditions fell in the Confederation of British Industry’s quarterly industry trends survey published on October 23. Businesses are becoming more hesitant to invest. Despite a weak sterling, exports aren’t looking up: The number of manufacturing firms saying they have a positive outlook about exports over the next year fell — only 7 percent more firms had a positive view than those with a negative one, compared to 13 percent more in July and 30 percent in April.

In the services sector — which accounts for three-quarters of the U.K. economy — domestic sales and orders, expectations about whether a firm will hire in the future, and investment are all stagnant and below pre-referendum levels, according to the BCC’s quarterly survey of 7,100 businesses, published on October 13.

Household consumption grew by 0.2 percent in the second quarter compared to the first, but any growth will be weighed down by the continued drag on wages.

Despite record low unemployment levels at 4.3 percent, real weekly average earnings fell by 0.4 percent, excluding bonuses, in June to August, compared to a year earlier. The BoE pointed out in its last Inflation Report that companies may hold off on raising wages until they’re more sure of future profits, while employees may be too scared to ask for wage rises, or switch jobs, due to the political and economic uncertainty.

In September, a BoE summary of business conditions said that “uncertainties regarding the U.K.’s future trading arrangements [with the EU] continued to deter investment for some firms,” with many looking to invest in the EU in order to be able to do business there, even if a trade deal isn’t struck with Brussels.

The financial services sector is leading that charge. “Every time there is an explosion of political rancor or disagreement, it does make companies doubt whether or not there will be a deal at all,” said Miles Celic, CEO of TheCityUK, an industry lobby group, in testimony to the U.K. parliament’s EU select committee on October 24. He added that banks aren’t going to wait long for the U.K. and EU to get a deal before they act on contingency plans and move business out of Britain.

Hold fire?

As calls grow for the BoE to hold fire, some members of the monetary policy committee have come out in agreement.

In testimony to the treasury committee on October 17, David Ramsden made it clear he was against a rate hike, while Silvana Tenreyro strongly caveated her September support of an imminent rate rise, saying she needed to see the data first. Then, in several interviews over the past weeks, Deputy Governor Jon Cunliffe said it isn’t clear rates need to be hiked soon.

These more recent mixed signals open the BoE to another kind of criticism. “It would be much more helpful if the BoE spoke with one voice and were more clear on the path of interest rates,” said the BCC’s Thiru.

François P

BoE should focus on wage inflation, and not on consumer price inflation. On that basis, there is no need for a rate increase.

Posted on 11/1/17 | 8:43 AM CEST

wow

Gosh look at the chart.. how low growth in UK was in some quaters for 2011, 2012, 2013 and 2016. All lower than all 2017 quarters.

And no brexit in those years.

Weird.

GDP is higher now than then.

Must have been the fabulous eurocurrency in constant crisis at that time. (still is) 10 years now and only just got growth in 2017. 10 years!! The economists have coined a word for it (google it) ‘eurosclerosis’.

Cheerio Now!

Posted on 11/1/17 | 9:47 AM CEST

CZ_EU_Optimist

Brexit = Faux pas anglais – Chamberlain 1938 alike.

Posted on 11/1/17 | 11:03 AM CEST

Peter2

If investment levels continue to drop. So will the wages and that will most probably reduce the inflation as well. Unfortunately unemployment levels can also rise. So no wonder BoE is like UK gov…

Posted on 11/1/17 | 12:18 PM CEST

YellowSubmarine

And yet, more good real figures. –

Manufacturing has outperformed the rest of the economy ever since the UK voted to leave the EU with the sector’s exports rising strongly on the pound’s new-found competitiveness.

Britain’s manufacturers are increasingly optimistic that the economy is in recovery mode, hiring staff at their fastest rate in more than three years to ramp up production.

Growth accelerated in the sector as new orders picked up and exports kept growing.

The purchasing managers’ index – an influential survey compiled by IHS Markit – rose to 56.3 for October, up from 56.0 in September and beating expectations that it would slip a touch to 55.9.

Any score of above 50 indicates growth, so this improvement shows the sector accelerating.

“UK manufacturing made an impressive start to the final quarter of 2017 as increased inflows of new work encouraged firms to ramp up production once again,” said Rob Dobson from IHS Markit.

“The sector looks to be achieving a quarterly rate of expansion close to 1%, therefore sustaining the solid pace of growth signalled by the official ONS estimate for the third quarter.” Britain’s manufacturers are increasingly optimistic that the economy is in recovery mode, hiring staff at their fastest rate in more than three years to ramp up production.

Growth accelerated in the sector as new orders picked up and exports kept growing.

Pound rallies as a final pre-Bank of England meeting economic indicator paves the way for the first interest rate increase in a decade tomorrow.

House prices in the UK saw a slight pick-up in growth last month, rising 0.2pc between September and October, according to Nationwide.

Annually, price growth was up to 2.5pc from 2.3pc in September and exceeding economists’ predictions of 2.2pc.

Posted on 11/1/17 | 2:50 PM CEST

~\_O_/~

Is Politico now just the fake news outlet for the EU; peddling scare stories and anti-UK propaganda? Seems like journalism left the room and Lord Haw-Haw has walked in instead.

Posted on 11/1/17 | 5:51 PM CEST

CZ_EU_Optimist

I find EU’s propaganda better then UK’s (especially one before Brexit).

Egotistic

How so, or did you just want to get the word egoism into a sentence about the UK because you heard it somewhere?

Posted on 11/1/17 | 11:56 PM CEST

wow

@CZ_EU

Just because your country is not self-sufficient.. we are an island used to self-sufficiency for 1000 years thanks. We have oil/gas/yin/minerals/fishing waters/green rainy lands etc.. we don’t need Putin’s dodgy gas pipes. UK has the largest oil reservs in the EU (shetlands).

We don’t need a babysitter either to not go to wa with France. We can be nice to our neighbours without a nanny.

Grow up.

We don’t share the guilt from the last century. And the whole ‘we gave you democracy’ isn’t true for us. We’ve had a continuous democracy for 1000 years with no break in the last century. Claiming the EU gave us this is an insult. It may be true for other EU countries but all these claims are simply not true for the UK.

They insult us.

We are not sharing any guilt it is all central europe’s. Deal with it yourselves and stop making it a collective giult for countries it does not apply to. We won;t put up with this manipulation of truth.

We have our own nukes and we are the No1 military in Europe. The EU have neither and jepordise our security with small countries making silly statements all the time being diplomatically immature.

As for trade deals, the EU has not done a trade deal with anybody bigger than us.

If the UK/Eu do one it will be the biggest they have ever completed.

They can’t even do trade deals correctly, as they were supposed to.

Stop being jealous because you admit you need the EU.

We can’t see any benefits. Because there are none for us. We are not you. Maybe your country need them. Good gor you, stay in then. However, there is no need for envy. It is an ugly emotion.

Posted on 11/2/17 | 9:56 AM CEST

wow

*France does not need the EU either.

Why they help Germ@ny on the world stage where Germ@ny is of no importance, and then suffer being talked to like a child by them is beyond me.